Sunway Berhad OUTPERFORM RESEARCH. Penang Expansion. Quick Bites. Target Price: RM3.08 KENANGA RESEARCH. 18 December 2013

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1 RESEARCH Quick Bites 18 December 2013 Sunway Berhad OUTPERFORM Price: RM2.64 Penang Expansion Target Price: RM3.08 News SUNWAY s wholly-owned subsidiary, Sunway City (Penang), has proposed to acquire 24.5ac, comprising of 4 pieces of freehold land in Paya Terubong, Pulau Penang, for a total consideration of RM267m or RM251 psf. The purchase consideration is derived from a successful bidding in an open tender, which the minimum reserve price was fixed at RM200 psf (which is 20% lower than the purchase price). The project has a potential GDV of c. RM1.5b. Comments Land cost is considered fair being 18% of the GDV as it is within the industry average range of 15%-20%. The acquisition will be financed by internally generated funds and bank borrowings and we estimate its net gearing to increase from 0.25x to 0.31x in FY14. The acquisition will likely be completed within three months from the SPA and construction works starting in early FY15. The project s GDV of RM1.5b consists of commercial shops (30%), SOHO and high-rise residential units (70%). We reckon the GDV is reasonable based on an ASP of RM803psf given the plot ratio of 2.5x and assumed 70% utilisation rate. This is in-line with the company's estimated selling price of RM650psf for residentials and RM1000psf for commercial retail lots. The land is strategically located between Penang city centre and the Penang airport. It is also surrounded by tourist attractions (i.e. Kek Lok Si Temple and Train Station to Penang Hill Resort) and matured residential townships, which would likely cater for upgraders in the area. The project is 400m from the main road, which is connected to Jalan Air Itam to Georgetown and also to the Bayan Lepas Free Trade Zone and Penang Bridge through Jalan Relau. We are long-term positive on the project. The residential component of the project is likely to target locals in the affordable range. While the acquisition price is reasonable, earnings accretion will likely take place from FY15 onwards. Outlook Meanwhile, we are looking forward to more new launches, including Medini, Mount Sophia and on-going projects that include Bukit Mertajam, Sunway Velocity, Sunway South Quay and etc. Management guided that FY13 sales are expected to beat the internal and our estimates of RM1.3b at RM1.8b, respectively. However, management is cautiously guiding FY14E sales target of RM1.8b until they ascertain the impact of the recent tightening measures put in place, particularly as SUNWAY has full exposure to DIBS. Nonetheless, the target is still better than our initial FY14E estimates of RM1.5b. Forecast Revising up FY13E and FY14E earnings by 3.6% and 9.0%. This is due to us revising higher our FY13 and FY14E sales targets by 37% and 15% to RM1.76b and RM1.80b. Rating Maintain OUTPERFORM Valuation The project increases our SoP by 6 sen. However, we prefer to maintain our SoP driven TP of RM3.08 as we are widening our property division discount rate (refer overleaf for details). Risks to Our Call Unable to meet sales targets or replenish landbank. Sector risks, including more negative policies. Share Price Performance KLCI 1, YTD KLCI chg 9.6% YTD stock price chg 27.7% Stock Information Bloomberg Ticker SWB MK Equity Market Cap (RM m) 4,550.1 Issued shares 1, week range (H) week range (L) mth avg daily vol: 932,953 Free Float 31% Beta 1.4 Major Shareholders SUNGEI WAY CORP SDN 46.4% YEAN TIH CHEAH 13.5% GIC PRIVATE LIMITED 8.7% Summary Earnings Table FYE Dec (RM m) 2012A 2013E 2014E Turnover EBIT PBT Net Profit (NP) Core NP Consensus (CNP) n.a Earnings Revision Core EPS (sen) Core EPS growth (%) NDPS (sen) BV/Share (RM) Core PER (x) Price/BV (x) Net Gearing (x) Dividend Yield (%) 2.3% 3.6% 3.0% Teo Joo Tse (J.Tse) jtse@kenanga.com.my PP7004/02/2013(031762)

2 OTHER POINTS Maintain TP of RM3.08. The project increases our SoP by 6 sen while we have also included Sunway s portion of SUNREIT s book value, which was excluded previously. Although its SOP has technically increased, we have also opted to widen our property developers RNAV discount to 35% (from 25%) as we look to widen our sector discount factor in our upcoming property sector update, in addition to the flattish FY14E sales target guidance. The wider sector discount factor is to reflect the negative sentiment in the property industry. While we laud the company for outperforming and guiding higher our FY13E and FY14E initial sales estimates of RM1.3b and RM1.5b, respectively, resulting in positive earnings accretion; the flattish FY14 sales target is unexciting relative to FY13. Thus, we prefer to maintain our S0P driven TP of RM3.08. Location map Source: Company SOP Table Segments Value Stake FY14E PER Discount Discounted Value RM'm (%) (x) (%) RM'm Property Development 5, % n.a 35% 3,460 Construction % 12 0% 650 Sunway Reit 1,365 34% n.a 0% 1,365 Quarry & Buildings Mat % 8 0% 30 Trading & manufacturing % 7.9 0% 295 Reitable assets 0 0% 0 0% 0 Total RNAV 5,801 RNAV per share (RM) 3.37 Dilution impact 879 FD RNAV per share (RM) 3.08 Diluted no. of shares ('m) 1,723 2,168 Page 2 of 6

3 FD RNAV Projects Stake Duration (assumed) Years Effective Remaining GDV (RM'm) Effective Remaining Net Profit (RM'm) WACC (%) DCF Value (RM m) Penang Sunway City Penang 100% % 20 Sunway Grand 100% % 9 Sungai Ara, Bayan Lepas 100% % 83 Bukit Mertajam 100% % 98 Paya Terubong 100% % 155 Johor Bukit Lenang 80% % 68 Sunway Iskandar 46% 10 5, % 505 Pendas 60% 15 10,800 1,863 11% 653 Perak Sunway City Ipoh 65% % 61 Klang Valley Sunway Damansara 60% 6 1, % 123 Sunway South Quay 60% 8 2, % 241 Sunway Monterez 60% % 3 Sunway Semenyih 70% % 57 Sunway Cheras 100% % 2 Sunway Duta 60% % 7 Sunway Montana 100% % 7 Sunway Alam Suria 100% % 2 Sunway Resort City 100% % 69 Casa Kiara III 80% % 16 Sunway Velocity 85% 7 2, % 282 Sunway Tower KL 1 100% % 29 Bangi 100% % 7 Melawati 2 100% % 5 Sg Long, Balakong 80% % 19 Mont Putra 100% % 16 Singapore Novena 30% % 100 Sembawang, Singapore 100% % 11 Mount Sophia 30% % 74 China Sunway Guanghao 65% % 5 Tianjin Eco City 60% 7 3, % 372 India Sunway OPUS Grand India 50% % 29 Sunway MAK Signature Residence 60% % 9 Australia Wonderland Business Park (Sydney) 45% % 13 Total Unbilled Sales various various 2, % 306 Revised Asset Value 3,457 NTA (at 31/Dec/12) 1842 RNAV 5299 Page 3 of 6

4 Income Statement Financial Data & Ratios FY Dec (RM m) 2011A 2012A 2013E 2014E 2015E FY Dec (RM m) 2011A 2012A 2013E 2014E 2015E Revenue Growth EBITDA Turnover (%) Depreciation EBITDA (%) Operating Profit Operating Profit (%) Interest Exp PBT (%) Investing income Core Net Profit (%) n.a Associate/JCE Exceptional/FV Profitability (%) PBT EBITDA Margin Taxation Operating Margin Minority Interest PBT Margin Net Profit Core Net Margin Core Net Profit Effective Tax Rate ROA Balance Sheet ROE FY Dec (RM m) 2011A 2012A 2013E 2014E 2015E Fixed Assets DuPont Analysis Intangible Assets Net Margin (%) Other FA Assets Turnover (x) Inventories Leverage Factor (x) Receivables ROE (%) Other CA Cash Leverage Total Assets Debt/Asset (x) Payables ST Borrowings Other ST Liability LT Borrowings Other LT Liability Minorities Int. Net Assets Share Capital Reserves Equity Debt/Equity (x) Net Cash/(Debt) Net Debt/Equity (x) Valuations EPS (sen) Core EPS (sen) NDPS (sen) n.a NTA (RM) PER (x) Net Div. Yield (%) 0.0% 2.3% 3.6% 3.0% 3.1% P/NTA (x) EV/EBITDA (x) Cashflow Statement FY Dec (RM m) 2011A 2012A 2013E 2014E 2015E Operating CF Investing CF Financing CF Change In Cash Free CF Fwd Core PER Band Fwd PBV Band Page 4 of 6

5 NAME Price (17/12/13) (RM) (RMm) Mkt Cap PER (x) Est. NDiv. Yld. FY12/13 FY13/14 FY14/15 Historical ROE P/BV (%) (%) (x) Net Profit (RMm) FY12/13 FY13/14 FY14/15 FY12/13 NP Growth FY13/14 NP Growth Target Price (%) (%) (RM) Rating DEVELOPERS UNDER COVERAGE UEM Sunrise , % 8.8% % -10.3% 2.76 OUTPERFORM SP Setia , % 8.7% % 41.7% 3.35 MARKET PERFORM Sunway Berhad % 16.1% % 18.4% 3.08 OUTPERFORM IJM Land* , % 8.5% % 26.0% 3.15 OUTPERFORM Mah Sing Group , % 19.9% % 21.8% 2.56 OUTPERFORM UOA Development* , % 15.4% % 12.7% 2.10 MARKET PERFORM Scientex Berhad , % 17.5% % 17.9% 6.28 OUTPERFORM Matrix Concepts , % 29.1% % 14.6% 4.80 OUTPERFORM Crescendo % 9.7% % 24.7% 4.00 OUTPERFORM Hua Yang % 23.5% % 44.5% 2.91 OUTPERFORM Hunza Properties* % 26.7% % 32.3% 2.15 UNDERPERFORM * Core NP and Core PER CONSENSUS NUMBERS BERJAYA LAND BHD , n.a. 2.4% % 60.0% 0.93 BUY IGB CORPORATION BHD , % 4.7% % 6.5% 3.47 BUY YNH PROPERTY BHD % 5.6% % 14.3% 1.78 NEUTRAL YTL LAND & DEVELOPMENT BHD n.a. 2.7% % 15.8% 1.40 BUY GLOMAC BHD % 14.8% % 13.5% 1.23 NEUTRAL KSL HOLDINGS BHD % 19.1% % -23.8% 2.38 BUY PARAMOUNT CORP BHD % 7.5% % 11.8% 1.71 BUY IVORY PROPERTIES GROUP BHD n.a. 8.4 n.a. 10.5% n.a n.a. n.a. n.a. BUY TAMBUN INDAH LAND BHD % 22.0% % 41.1% 1.80 BUY Page 5 of 6

6 Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM :A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). MARKET PERFORM :A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERPERFORM :A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). Sector Recommendations*** OVERWEIGHT : A particular stock s Expected Total Return is MORE than 10% (an approximation to the 5-year annualised Total Return of FBMKLCI of 10.2%). NEUTRAL : A particular stock s Expected Total Return is WITHIN the range of 3% to 10%. UNDERWEIGHT : A particular stock s Expected Total Return is LESS than 3% (an approximation to the 12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate). ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia Telephone: (603) Facsimile: (603) Website: Chan Ken Yew Head of Research Page 6 of 6